Measures of Rent Growth, Core Inflation Are Easing in the Final Month of 2022

Elevated housing costs have bolstered high inflation throughout the past year, but as rent measures reveal moderating growth at the close of 2022, some housing experts suggest that inflation could fall below the Federal Reserve’s 2% target by 2024. Zillow’s Observed Rent Index revealed just a 0.3% gain in October from September, 3.7% annualized, and according to The Wall Street Journal, CPI shelter rose 0.8% the same month, or 9.4% annualized.

Housing is the largest component of the Consumer Price Index, which is why a slowdown in what has for years been a fast-paced rental market could amount to serious moderation in upcoming measures of core inflation.

Housing is influential because it is the largest component of the CPI: Tenants’ rent made up 7.4% of the CPI in September, and owners’ equivalent rent (OER), which measures homeowners’ costs, made up 24%. Shelter’s share of the core CPI, which strips out volatile energy and food prices, was an even larger 41.7%. As core inflation rose from 4.6% in October 2021 to 6.3% in October 2022, shelter inflation contributed around 1.4 points of the acceleration.

PB Topical Ref